2025 (6) TMI 1470 - AT - Income Tax

Rejection of application for grant of Registration u/s 12AD - No proper opportunity of being heard - violation of principle of natural justice - cancellation of provisional registration granted under section 12AB - Validity of impugned order as no opportunity on real time basis were afforded to the assessee - HELD THAT - From the impugned order it is also noticeable that the Ld. CIT (E) held an opinion that personal hearing is not required and submission can be made through electronic mode. With respect we cannot subscribe to such opinion of Ld. CIT (E) as it is incumbent upon Ld. CIT (E) to afford an opportunity of personal hearing to the assessee and then it is up to assessee whether to avail such an opportunity or not of personal hearing. Further we hold that merely because Ld. CIT (E) opines that personal hearing is not required and submissions can be made through electronic mode is no ground to deny an opportunity of hearing to assessee. Nothing prevented Ld. CIT (E) to give video conference hearing to the assessee. We finally hold that there is indeed a violation of the principles of natural justice as Ld. CIT (E) erroneously held an opinion that personal hearing would not make a difference. We basis premises drawn up by us as aforesaid set aside the impugned order and remand the case back to the file of Ld. CIT (E) to pass a fresh order on denovo basis after giving reasonable opportunity to the assessee to present his case in an effective manner. Assessee to be afforded an opportunity of personal hearing before the case is finally adjudged and adjudicated. Assessee to cooperate with the department of Income Tax and not to seek any unnecessary adjournments on flimsy grounds. Appeal of the assessee is allowed for statistical purpose.

Summary

1. ISSUES PRESENTED and CONSIDERED

The core legal questions considered by the Tribunal in this appeal are:

(a) Whether the impugned order rejecting the application for registration under section 12AB of the Income Tax Act, 1961, and cancelling provisional registration granted under section 12AB, was legally valid and in accordance with principles of natural justice?

(b) Whether the assessee was afforded adequate opportunity of hearing and sufficient time to comply with the queries and furnish the required documents and clarifications as mandated under the procedural requirements of section 12AB?

(c) Whether the rejection of the application for registration and cancellation of provisional registration on the ground of non-compliance of documents was justified, considering the submissions made by the assessee and the procedural conduct of the Commissioner of Income Tax (Exemption) (CIT(E))?

(d) Whether the impugned order was passed without personal hearing and whether such omission constitutes violation of the principles of natural justice?

(e) Whether the matter should be remanded for fresh adjudication after affording reasonable opportunity of hearing and compliance to the assessee?

2. ISSUE-WISE DETAILED ANALYSIS

Issue (a) & (b): Validity of the impugned order and adequacy of opportunity afforded

The relevant legal framework includes sections 12AA and 12AB of the Income Tax Act, 1961, which govern the procedure for registration and fresh registration of charitable trusts or institutions. The Act mandates that the Commissioner of Income Tax (Exemption) must verify the genuineness of the objects and activities of the applicant society before granting registration under section 12AB, which confers exemption benefits.

Precedents emphasize that procedural fairness and adherence to principles of natural justice are paramount in such administrative decisions, especially when registration under a beneficial provision is involved.

In the present case, the assessee applied for registration under section 12AB by filing Form 10AB. The CIT(E) issued multiple opportunity letters seeking various documents and clarifications, including certified audit reports, details of commercial receipts under section 194C, copies of work orders/MoUs, complete bye-laws, salary details, bank statements, and supporting documents for certain expenses. Despite repeated notices dated 30.08.2024, 27.09.2024, 03.10.2024, and 18.11.2024, the assessee failed to submit all the requisite information timely.

However, the assessee did submit some documents on 23.10.2024 but did not comply with the further detailed queries raised on 18.11.2024. The CIT(E) then passed the impugned order on 26.11.2024 rejecting the registration application and cancelling provisional registration on the ground of non-compliance, citing limitation expiry on 30.11.2024.

The Tribunal noted that only a single final opportunity was given after the last query letter dated 18.11.2024, and the order was passed within eight days, effectively denying the assessee a meaningful chance to respond. The CIT(E) also held that personal hearing was not required and submissions could be made electronically.

The Tribunal held that the impugned order violated the principles of natural justice because the assessee was not afforded adequate opportunity to present its case, especially given the complexity and volume of information sought. The Tribunal emphasized that the right to personal hearing is a fundamental aspect of natural justice, and the CIT(E) erred in concluding that it was unnecessary. The Tribunal observed that electronic submissions do not substitute for an opportunity of personal hearing, which could have been granted through video conferencing or other means.

Issue (c): Justification for rejection and cancellation on non-compliance grounds

The CIT(E) relied on the non-submission of detailed clarifications and documents to conclude that the assessee's activities were not purely charitable, highlighting commercial receipts exceeding 20% of total receipts, which contravened the proviso to section 2(15) of the Act. The CIT(E) also noted incomplete bye-laws and unexplained salary and expenditure heads.

While these findings are prima facie relevant, the Tribunal found that the assessee's inability to respond fully was due to procedural inadequacies in affording sufficient time and hearing. The Tribunal recognized the importance of verifying the genuineness of activities but stressed that such verification must be done after allowing the assessee a fair opportunity to explain and furnish documents.

Issue (d): Violation of principles of natural justice due to absence of personal hearing

The Tribunal underscored that the CIT(E)'s opinion negating the necessity of personal hearing was legally unsustainable. The right to be heard in person is an essential facet of natural justice, particularly in matters affecting fundamental rights or benefits under the tax law. The Tribunal noted that denying personal hearing on the basis that submissions could be made electronically was erroneous. It further observed that the CIT(E) could have utilized video conferencing facilities to conduct the hearing, especially given modern technological capabilities.

Issue (e): Remand for fresh adjudication with opportunity of hearing

Considering the procedural lapses and violation of natural justice, the Tribunal exercised its jurisdiction to set aside the impugned order and remanded the matter to the CIT(E) for de novo adjudication. The Tribunal directed that the assessee be given reasonable and adequate opportunity to comply with all queries, present clarifications, and be afforded personal hearing before any final order is passed. The Tribunal also cautioned the assessee against seeking unnecessary adjournments and emphasized cooperation with the department.

3. SIGNIFICANT HOLDINGS

The Tribunal held:

"There is indeed a violation of the principles of natural justice as Ld. CIT (E) erroneously held an opinion that personal hearing would not make a difference."

"Merely because Ld. CIT (E) opines that personal hearing is not required and submissions can be made through electronic mode is no ground to deny an opportunity of hearing to assessee."

"Nothing prevented Ld. CIT (E) to give video conference hearing to the assessee."

"The impugned order is set aside as and by way of remand back to the file of Ld. CIT (E) on denovo basis."

Core principles established include the inviolability of the right to personal hearing and the requirement that administrative authorities must afford reasonable opportunity to applicants before rejecting applications for registration under section 12AB. The Tribunal reaffirmed that electronic submissions do not replace the right to be heard in person.

Final determinations on each issue are:

(i) The impugned order rejecting registration and cancelling provisional registration was legally unsustainable due to violation of natural justice.

(ii) The assessee was not given adequate opportunity to comply with queries or to be heard personally.

(iii) The CIT(E)'s view that personal hearing was unnecessary was erroneous.

(iv) The matter is remanded for fresh adjudication with directions to afford personal hearing and reasonable opportunity to the assessee to submit clarifications and documents.